As of March 22, 2019
Corporate Governance Principles
Sumitomo Corporation established the "Sumitomo Corporation Corporate Governance Principles" while keeping in mind that our backbone of corporate ethics is in the "Sumitomo's Business Philosophy" and the "Management Principles." "The Sumitomo Corporation Corporate Governance Principles" was established based on our view that the essence of corporate governance is "improving management efficiency" and "maintaining sound management," as well as "ensuring management transparency" to secure the first two. Following the "Sumitomo Corporation Corporate Governance Principles," we are always seeking to establish the most appropriate managerial system for the Company and are strengthening our corporate governance to realize management that serves the interests of shareholders and all other stakeholders.
System and features of corporate governance
We have adopted a company with Audit & Supervisory Board Member system, as we believe that strengthening and enhancing this system is the most effective means of improving the effectiveness of corporate governance. In addition, we have appointed five Outside Directors with a view to ensuring appropriate decision-making by the Board of Directors and further strengthening supervision.
Our “Medium-Term Management Plan 2020,” which began in fiscal 2018, also includes initiatives for strengthening functions for monitoring by the Board of Directors, such as more thorough reporting in relation to business portfolio strategy, with the aim of further enhancing corporate governance.
Framework for "Improving Management Efficiency" and "Maintaining Sound Management"
Directors and the Board of Directors
Composition of the Board of Directors
The composition of the Board of Directors ensures diversity in experience, knowledge, expertise, gender, and so on. In June 2018, the number of Outside Directors was raised from three to five (of which two are female), and this increase in the ratio of Outside Directors resulted in the further reinforcement of functions for supervising the execution of management.
Improvement of Deliberation and Enhancement of Monitoring Function at the Board of Directors
We carefully select agenda items requiring discussion by the Board of Directors so that the Board of Directors can concentrate on the deliberation of important matters regarding the company-wide management such as the business policy and management plan. At the same time, we have increased the matters to be reported to the Board of Directors to make it possible for the Board of Directors to concentrate supervising execution of operation, so that the Board of Directors can enhance its monitoring function.
Optimal Size of Board of Directors
Currently, the Board has eleven members (including five Outside Directors). Through this optimized Board of Directors, which oversees the operations of the business and serves as the Company's decision-making body concerning key management matters, we aim to facilitate due deliberation and speedy and reasonable decision-making.
Terms of Directors
The terms of Directors are one year. We aim to clarify the responsibility of management among members of management each fiscal year. This, in turn, helps ensure fast reaction times to changes in business conditions.
Limit on Term of the Chairman of the Board of Directors, and No Representative Powers and Authority to Execute the Business Operation of the Chairman of the Board of Directors
In principle, the positions of Chairman of the Board of Directors and the President and Chief Executive Officer are clearly defined and separate in order to ensure mutual supervision, and both positions cannot be held simultaneously by the one person.
The Chairman of the Board of Directors shall supervise the management of the Company and have no representative powers and no authority to execute business operations.
In principle, the Chairman of the Board of Directors is limited to term of six years. This limitation on the tenure helps minimize the possibility of governance problems.
Establishment of the Advisory Body to the Board of Directors
We established the Nomination and Remuneration Advisory Committee (chairperson: outside director). Functioning as an advisory body to the Board of Directors, more than half of the Committee members are Outside Directors. The Nomination and Remuneration Advisory Committee is in charge of deliberating on the following matters and will report the outcome of such deliberation to the board of directors:
- Policy and procedure for appointment and dismissal of the President and Chief Executive Officer
- Policy and procedure for appointment and dismissal of the Chairman of the Board of Directors
- Nomination criteria for directors and audit & supervisory board members
- Appointment and dismissal of the President and Chief Executive Officer (including nominating successors to the President and Chief Executive Officer)
- Nominations of candidates for directors and audit & supervisory board members (including deciding representative directors and executive directors)
- Appointment of members of the Management Council
- Structure and level of remuneration and bonuses for directors and executive officers, as well as limits for remuneration of audit & supervisory board members
- Senior advisor and honorary advisor system (duties, remuneration, term of office, etc.)
Election of Outside Director
For the purpose that Sumitomo Corporation ensures appropriate decision-making in board meetings and further enhancement of supervisory functions through diverse perspectives, five Outside Directors are elected. They fulfill the standards related to independence set by the Tokyo Stock Exchange and other exchanges, and the Standards for Independence set by Sumitomo Corporation.
Audit & Supervisory Board Members and the Audit & Supervisory Board
Enhancement of Auditing Capabilities
To strengthen corporate auditing capabilities from an external viewpoint, we bring the number of external auditors to three out of the five members on the Audit & Supervisory Board. Of these three, two are legal experts (a former Prosecutor-General and a President, Osaka High Court) and one is an accounting expert—ensuring an auditing system that incorporates a diversity of perspectives. They fulfill the standards related to independence set by the Tokyo Stock Exchange and other exchanges, and the Standards for Independence set by Sumitomo Corporation.
Ensuring Audit Effectiveness
Audit & Supervisory Board Members attend meetings of the Board of Directors and all other important internal meetings, to obtain the information necessary for proper auditing. Audit & Supervisory Board Members also meet the Chairman of the Board of Directors and the President and Chief Executive Officer every month to exchange opinions on material issues regarding management policy and auditing. Moreover, the Audit & Supervisory Board Members' Administration Department is assigned to assist Audit & Supervisory Board Members, so that the auditing system functions effectively and without hindrance.
Collaboration between Internal Auditing Department and Accounting Auditors
To ensure audit efficiency, Audit & Supervisory Board Members interact closely with the Internal Auditing Department, receiving reports on internal audit plans and their results in a timely manner. In addition, Audit & Supervisory Board Members exchange information with and monitor the auditing activities of the Accounting Auditors through regular meetings. By attending audit review meetings and observing inventory audits with the Accounting Auditors, the Audit & Supervisory Board Members constantly work to improve audit efficiency and quality.
Internal Control System
The Company's Board of Directors resolved and implemented the systems set forth in the Companies Act, Article 362 of Paragraph 4, Item 6 (internal control system). The Company will endeavor to establish a superior system in line with requests made from time to time based on ongoing reevaluations.
The Internal Auditing Department, which reports directly to the President and Chief Executive Officer, was established as an independent organization to monitor the operations of the Company and Group companies. All the internal audit results are reported directly to the President and Chief Executive Officer and also to the Board of Directors.
The Internal Auditing Department checks comprehensively the assets and risk-management, status of compliance and business processes to find their problems and risks inherent. The Internal Auditing Department helps to raise the quality of organizational management by encouraging voluntary improvements and evaluating the effectiveness and the validity of each process.
Standards for Independence
Standards for independence of outside directors and outside Audit & Supervisory Board Members shall be prescribed in the Company's internal rules "Standards for Appointment and Independence of Outside Directors and Outside Audit & Supervisory Board Members".
On July 1st, 2015, we had changed the Management Council into a decision-making body in order to make a decision through diverse opinion and multilateral discussions more than before. The Management Council deliberates on and renders decisions regarding specific key matters related to management within the scope of its mandate from the Board of Directors.
Introduction of an Executive Officer System and Limit on Term of the President and Chief Executive Officer
We have introduced an executive officer system with the aim of clarifying the responsibilities and authority for execution and strengthening the monitoring function of the Board of Directors. In principle, the President and Chief Executive Officer is limited to term of six years. This limitation on the tenure of top management helps minimize the possibility of governance problems.
Committees including Company Investment Committee, Medium-term Management Plan Promotion Support Committee, Internal Control Committee, Compliance Committee are established as advisory bodies for the President and Chief Executive Officer or the Management Council with regard to specific matters that are important from the perspective of Sumitomo Corporation as a whole.
System for Ensuring Management Transparency
Basic Policy on Information Disclosure
To bring an accurate understanding of the Company's management policies and business activities to all our stakeholders, we shall strive to make full disclosure, not limiting ourselves to the disclosure of information required by law but also actively pursuing the voluntary disclosure of information.
Communicating with Shareholders and Other Investors
Measures relating to the General Meeting of Shareholders
We send out a Notice of Convocation to shareholders approximately three weeks prior to each regularly scheduled General Meeting of Shareholders. For the convenience of overseas shareholders, we also provide an English-language translation of the notice on our website in advance of sending a Notice of Convocation. We have allowed our shareholders to exercise their voting rights via the Internet using personal computers since 2004 and via the Internet using mobile phones since 2005. In 2007, we introduced the Electronic Voting Platform operated by Investor Communication Japan, Inc. (ICJ). The new platform allows institutional investors sufficient time to thoroughly examine the propositions to be resolved at the meeting. In addition, we stream video of the General Meeting of Shareholders on our website for a set period following the close of the meeting.
Disclosing Various Information
The IR section of our corporate website provides various materials that may be useful in making investment decisions in a timely manner. These materials include financial results, yukashoken houkokusho (Japanese annual securities reports) and other Tokyo Stock Exchange filings as well as streaming and related documents of various meetings. Moreover, we provide our Integrated Report (formerly known as Annual Report) and endeavor to ensure proactive disclosure.
In order to ensure direct communication with shareholders and other investors, we hold quarterly meetings attended by top management to provide information on our financial results for analysts and institutional investors. Also, we periodically visit the United States, the United Kingdom, and other countries in Europe and Asia to hold one-on-one meetings with investors in each region. In addition, we regularly hold meetings with individual investors in Japan. While increasing management transparency, we aim to strengthen our relationships of trust with shareholders and investors.
While working to strengthen and enhance our corporate governance structure and systems, from the perspectives of "improving management efficiency" and "maintaining sound management," we will continue to further strengthen internal auditing, risk management, compliance, to further improve the effectiveness of internal control.